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Drug manufacturers defend their unrelenting campaign to reform the 340B program by citing, among other things, the need to protect themselves from the problem of duplicate discounts. Federal law affords such protection for drugs dispensed or administered to Medicaid recipients but, according to industry, the relevant laws are ineffective for Medicaid managed care drugs and do not even apply to non-Medicaid drugs. Drug company advocates assert that, to fix these problems, Congress must open up and amend the 340B statute. The community of safety net hospitals and clinics participating in the 340B program, by contrast, believe that legislation is unnecessary to eliminate the risk of duplicate discounts. To overcome this apparent impasse, the three major stakeholders in the 340B program – covered entities (CEs), manufacturers and payers – should consider establishing and voluntarily participating in a neutral clearinghouse specifically designed to prevent duplicate discounts.
When Congress enacted the 340B statute in 1992, it recognized that the statute’s overlap with the Medicaid Drug Rebate Program (MDRP), passed into law two years earlier, could expose manufacturers to the risk of giving both a Medicaid rebate and 340B discount on the same drug. To avoid this duplicate discount risk, Congress added language in both the 340B and MDRP statutes prohibiting CEs from purchasing Medicaid drugs through the 340B program except in accordance with a mechanism developed by the Department of Health and Human Services (HHS) for coordinating discount and rebate requests under the two programs. HHS’s implementation of this statutory directive, which involved creation of the Medicaid Exclusion File (MEF), successfully reduced the risk of duplicate discounts. That changed, however, when Congress expanded the MDRP under the Affordable Care Act to include Medicaid managed care organization (MCO) claims. While the MEF was effective for fee-for-service Medicaid drugs, it was never intended to address MCO duplicate discounts. Congress chose to place on states, not CEs, the responsibility for preventing duplicate discounts for MCO drugs. Unfortunately, states have struggled to comply with their duplicate discount obligations, as documented by several government reports.
States’ primary obstacle to preventing MCO duplicate discounts is their lack of resources for both identifying 340B claims and excluding such claims from their rebate requests. To remedy this problem, states and CEs worked with Rep. Doris Matsui and other members of Congress to draft the PROTECT Act which, if enacted, would establish a neutral clearinghouse for receiving and comparing 340B claims data from CEs and rebate claims data from states. Under the proposal, HHS would contract with a third party to manage the clearinghouse. CEs would be allowed to submit claims data retrospectively and such data would not be shared with manufacturers or payers. The PROTECT Act would also prohibit Medicaid MCOs and their pharmacy benefit managers (PBMs) from reducing reimbursement or imposing other kinds of discriminatory participation requirements on CEs and their pharmacies. By offering a secure, neutral, and enforceable clearinghouse for analyzing 340B claims data, the PROTECT Act seeks to resolve the duplicate discount issue while safeguarding the integrity of the 340B program and its safety-net providers.
While enactment of the PROTECT Act would undoubtedly protect against Medicaid MCO duplicate discounts, the same outcome can be achieved without legislation. The stakeholders would have to agree contractually to participate in a private clearinghouse and to comply with certain terms and conditions designed to protect the interests of the participating entities. To elicit the support of CEs, the terms and conditions would have to borrow four critical safeguards incorporated in the PROTECT Act.
- Safeguard One: The clearinghouse would have to be neutral and not subject to the control or influence of any of the stakeholder groups. Participating CEs, manufacturers and payers would each have to agree contractually to the neutrality of the party operating the clearinghouse.
- Safeguard Two: The clearinghouse would have to maintain the confidentiality of the data submitted to it. In particular, the 340B claims data submitted by CEs could not be shared with either the drug manufacturers or the payers. Likewise, rebate data would not be shared with CEs.
- Safeguard Three: CEs must be allowed to submit 340B claims data retrospectively. Since CEs and their third-party administrators need time to validate the 340B eligibility of pharmacy claims to ensure compliance with 340B program requirements, real-time submission of 340B claims data would be impossible to achieve.
- Safeguard Four: Payers would have to agree not to reduce reimbursement or to impose any other discriminatory requirements on 340B pharmacies participating in their networks. The prevention of duplicate discounts would likely mean payers would receive fewer rebates from manufacturers. CEs need assurances that payers will not cut payment rates for either 340B pharmacies or 340B drugs to compensate for the lost rebates.
The last safeguard would be unnecessary if the clearinghouse is launched in one of the 34 states that already protects CEs from discriminatory reimbursement. It would only be necessary in the 16 states that have not enacted 340B anti-discrimination legislation.
Importantly, the opportunity to use a clearinghouse to prevent duplicate discounts does not have to be limited to Medicaid claims. It can be used to address commercial claims too. Manufacturers’ restrictions on contract pharmacies and their demand that CEs submit 340B claims data to 340B ESP are driven in part by their interest in avoiding commercial duplicate discounts – the payment of voluntarily-negotiated rebates on 340B drugs to commercial health plans and their PBMs in exchange for preferential placement of the manufacturers’ drugs on the payers’ formularies. Although CEs have no legal obligation to prevent or remedy these commercial duplicate discounts, it may be within their interest to help manufacturers as part of a broader strategy to protect the 340B contract pharmacy program and to replace 340B ESP with a neutral clearinghouse. 340B ESP, in contrast to the neutral clearinghouse model, is not independent of manufacturer control and does not maintain the confidentiality of 340B claims data.
In conclusion, the establishment of a neutral clearinghouse to protect against 340B duplicate discounts may be one of the few areas where CEs, manufacturers and payers have a common interest to work collaboratively. If the clearinghouse incorporates the safeguards described above, CEs should support the model and choose to participate in it. Need for the model is especially strong in the Medicaid MCO and commercial markets, but there is no reason it cannot be expanded to Medicare and other insurance markets. But this important opportunity will not be realized until a motivated and forward-thinking group of CEs, manufacturers and payers agree to pilot the idea.
Bill von Oehsen is Principal at Powers Pyles Sutter & Verville. He can be reached at William.vonOehsen@PowersLaw.com
